Saturday, August 29, 2009

I caught a neat post from The Reformed Broker blog titled "What Your Favorite Blogs Were Saying at the Bottom". Despite not being one of the Reformed Broker's favorite blogs, if you are reading this I am sure I am *your* favorite blog and you are what matters. ;)

The bottom in retrospect was March 6, 2009 - it was a Friday and we hit the foreboding S&P 666 level intraday before closing at 683. It's been just about straight up since. Noted hedge fund manager Doug Kass has called this a generational bottom i.e. we won't see those levels tested for a generation. Of course we won't know until we look back in 20 years but for now it is looking like a great call. Like Doug I was trying to get more long oriented the 2 weeks previous as I was counting on a rubber band effect... the S&P 500 in fall of 2008 had fallen an almost unheard of 38% below the 200 day moving average. Coming into that week the S&P 500 had fallen to 32% below....

As the market went into another free fall week after week in late winter 2009, I kept track of how far the rubber band was being pulled back ... 25% below the 200 day, 28% below, 33% below... 36%... I kept trying to get long some stocks in the 2 weeks previous to March 6th and kept getting my head handed to me. Looking at my position sheet that week, I was (considering it felt like the world was ending) aggressively long with 33% long, and only 11% short (rest in cash). Being even 2 weeks early on the "reversal of the ages" actually hurt. Then eventually we hit 38% the week of March 6th- as far below where the market was at the worst in fall 2008; keep in mind fall 2008 had a week where the market lost 20%. Yet we KEPT going down, indeed we reached 40% below the 200 day moving average on that fateful day: March 6th.

For curiosity sake I wondered what I was saying on that day and right before and after. Here is how the week played out.

Ironically with AIG surging hundreds of percent this week, back in March we were talking a lot about the AIG itself, and how the 100% payoffs for AIG's obligations basically were a handout to other financial firms. In most bankruptcies, creditors are happy to get 30 cents on the dollar, but the US taxpayer is a poor negotiator and was happy to pay 100 cents on the dollar.

Sunday March 1st, I posted an excellent piece by NY Times Joe Nocera on how AIG got to be where it was, and why it was so central to the global financial system - AIG: Propping Up a House of Cards

Next week, perhaps as early as Monday, the American International Group is going to report the largest quarterly loss in history. Rumors suggest it will be around $60 billion, which will affirm, yet again, A.I.G.’s sorry status as the most crippled of all the nation’s wounded financial institutions. The recent quarterly losses suffered by Merrill Lynch and Citigroup — “only” $15.4 billion and $8.3 billion, respectively — pale by comparison.

At the same time A.I.G. reveals its loss, the federal government is also likely to announce — yet again! — a new plan to save A.I.G., the third since September. So far the government has thrown $150 billion at the company, in loans, investments and equity injections, to keep it afloat. It has softened the terms it set for the original $85 billion loan it made back in September. To ease the pressure even more, the Federal Reserve actually runs a facility that buys toxic assets that A.I.G. had insured. A.I.G. effectively has been nationalized, with the government owning a hair under 80 percent of the stock.

Again it is amazing to read that when you consider how the stock acts now - by amazing I mean infuriating but anger has no place in America anymore. We simply live in a win, win, win society where there are no costs.

That Sunday night Harry Markopolosappeared on 60 Minutes explaining how he basically tried to hand Bernie Madoff to the SEC for close to a decade.

At the time things were so dire, and the mood so dour I had taken to posting panda pictures (pandas are soothing, cute creatures) in many posts - including my weekly summary.

Yet another horrible week in the markets with the S&P 500 down -4.5%. While we have outlined how flawed the Dow Jones Industrial Index is [Reuters: Is it time to Overhaul the Dow?] it is the oldest index at 113 years old, so these data points are staggering. We just came off the worst (by %) January in history; and followed it up by the second worst (by %) February in history. Back to back. Thrown on top of horrific Sept, Oct and most of November. This 6 month stretch is debilitating if your sitting in a fully invested long only account - you can almost hear the 401k withdrawals and mutual fund closings in the wind....

Remember, at its worst in history the S&P 500 traded 37% below the 200 day moving average (Nov 2008) 25% used to be considered "extreme". Where are we today? Roughly 1080 on the 200 day moving average, so S&P 735 is 32% off. The rubber band is being pulled farther... and farther... and farther - eventually it will be released and we'll "snap" back upwards. If you are curious - to get to a 37% distance from the 200 day moving average we'd have to get to S&P 680. So yes Dorothy - it can get worse from here.

On the plus side the sharper we fall, the more pronounced the following rebound will be (small comfort) - timing that turn is very difficult and if November 2008 is any indication if you are 2 hours late you missed half the rebound.If you have been reading the blog longer than a few months you now see how silly the cheerleading of "it's a new year! therefore it must be better" OR "2008 was so bad, surely we will rebound in 2009" OR "the first 5 days of the year clearly identify how the year will go" - all Kool Aid handed out by the sirens of punditry. We said the market was still way overpriced (and in fact - sadly - still is) and that 2009 will ping pong between hope and reality. We started the year off with hope and have been facing a relentless onslaught of reality since. Now let's be clear - hope will come back at some point... and just like the action 8 weeks ago did not "signal the economy is improving" (as the talking heads screamed) the same will be said for the "coming rebound".

Louise Yamadashowed on up onCNBC's Fast Money - when she appeared the previous fall the market bottomed within a week. Amazingly her Fast Money appearances now seem to be the contrarian indicator! She of course called for S&P 600 back in November 2008 which she reiterated, and also gave the same "potential to S&P 400" call she mentioned in November.Tuesday, the 3rd - NourielRoubinishowed up on Yahoo Tech Ticker and CNBC. Unfortunately, instead of sticking to making good economic calls he turned into a stock market prognosticator and his infamous S&P 600 call also surfaced.

We posted a story on how Germany's auto sales were booming (10 years highs) based on Cash for Clunkers... I said I was surprised Obama had not latched onto it. As always, I tend to be early.

Frankly, it's just a direct subsidy to car makers disguised as a rebate check but hey, it seems to be working in Germany. Surprised Obama has not latched onto this since you could make an environmental case to boot (older cars being less Earth friendly)

After the bell Google announced they are not immune to the economy and traders dumped it an additional 3.5% after hours.

Oh boy, and here is an interesting one - you know how Jim Cramer says he was calling the bottom, as he agreed with Doug Kass. Revisionist history seems to be Jim's hallmark. You want to know who called the bottom in stocks? President Obama!! In [Barack Obama: Buy Stocks; Jim Cramer - Stop it Obama!] we posted 3 videos - Obama said stocks were a good value (the video is no longer available on that entry but surely can be googled) while Jim Cramer was arguing with Erin Burnett that the market was not a place to be; meanwhile Robert Gibbs actually made remarks about Cramer's viewpoints. Hilarious in retrospect. Just like Jim called for a housing bottom in 2006... and now claims he says it would be 2009 :)

This is all starting to get surreal - I feel like a fiction writer nowadays. Now that President Obama has destroyed the payday lenders and much of the healthcare sector I am wondering if he finds value in those sectors. I am hoping he starts a stock blog so I can pick up some specific tips...

Cramer: "We're going lower" "I see no reason to own bank stocks" - etc etc. Sounds like a bottom call to me. Here is the irony - Jim has been attacking NourielRoubini endlessly the past few months for not calling the economic or stock market bottom. But if you look what I just posted above, on the 3rd of March both were in complete agreement. That said, Nouriel is not good at revisionist history... just remember, Jim Cramer was there with Doug Kass calling the bottom - it will be the basis of his coming book.Wednesday, the 4th - Jim Rogers said to let the financials fail. Not in America Jim - remember we are not Japan and please don't call them zombies. If only you could see their stocks fly up 100s of percent 6 months later.

We noted 1 in 5 Americans were underwater on their mortgages and reiterated our long held call this would hit 1 in 4.

The market was actually up that day, so I covered the last of my Apple short and brought out the heavy guns... Kool Aid man.

Thursday, the 5th- Jon Stewart had been all over the stock market, and begun his turf war with CNBC at large. Joe Nocera actually paid a visit that week to speak more of AIG.

Look things were out of control - this blog author went to the extreme of asking readers to send him positive economic stories; that's when you know it's bad.

I noted how many times we rallied on nonsense, specifically in the financials - the latest incarnation in fall had been "Tim Geithner would save us" - I said it was now clear he had not saved us. But that had not stopped the market from rallying

Since Tim Geithner has opened his mouth the S&P has fallen from 870 to 682; thats nearly 22% or a full bear market Tim. I am not placing the blame on him; I am just shaking my head at the excitement over his magical speech and 'thesis' buying, even to this day. We also rallied 3-4% in an hour when he was announced late in 2008 because after all - he walks on water and the government will make all our problems go away. If its not one Treasury secretary its another - someone will save us. False idols.

That should sound familiar to you - just replace Tim Geithner with Alan Greenspan, or Ben Bernanke and our idol worship continues. The more things change...

The New York Post asked where was Paul Volcker - we also wondered but it had already been made clear he had been ambushed by Larry Summers. Based on generations of future Americans we were to steal from in the coming months to make today's generations happy - his "disappearance" will be something our grandchildren and great grandchildren will rue as the only voice in reason turned into a hood ornament.

As the markets crumbled down to S&P 666, I threw on a 6% short exposure on Amazon.com in case (and I literally used the words) an End of Days scenario occurred Monday. Remember, October 19, 1987 was a Monday.

The previous night Stephen Colbert created the Doom Bunker. Stephen, completely unnecessary - but you might want to build one for the great grandchildren. By taking from them, we saved ourselves - I believe the new term is generational theft and its at a 52 week high. Boo Yah!

The AIGcounterparty furor grew, but as all American leaders know - you simply must lay low during times of crisis and let the furor pass - the peasantry soon loses all interest as it moves on to American Idol, Jon and Kate Make Eight, or NFL (the boob tube = modern day gladiator games)- whichever part of the year we happen to be in. In fact if you wait long enough a company that owes the US 30x its market capitalization can run up 100% of percents making a slice of said peasantry mad money. Only in Cramerica.

Saturday the 7th... the day after - details of the government's handouts to countless international financial firms finally made the press. I could only do one thing - do the ultimate contrarian act - post a series of happy videos on the blog.

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